5 Desalination Companies That Could End California's Once-in-500-Years Drought

After months of drought, gray rainclouds finally arrived over the Golden State this week, bringing inches of welcome wetness. But even with the storms, which are expected to last through the weekend, residents say their state has been so parched, for so long, that they need 20 inches of rainfall just "to get to normal."

Unfortunately, they'll be lucky to get 4.

And this matters to me ... why?Meteorologists say there hasn't been a drought this bad in California in 500 years. If you live in the state, this is already painfully obvious. But in case you live outside, here's a quick rundown of why California's drought is important to you: More than half the fruit and vegetables sold in America are grown in California's Central Valley. California grows 99% of our pistachios and almonds, and 96% of our tomatoes. Lemons -- 89%. Carrots -- 86%. Lettuce -- 49%. And that's just the start of the grocery list.

The view from Marine One, as all of California's greens turn to brown. Photo: Wikimedia Commons.

Yet with 91.6% of California experiencing "severe to exceptional" drought conditions, these fruits and veggies are getting harder -- and given the need to irrigate, more expensive -- to produce. California produced $44.7 billion worth of fresh produce last year, but the drought threatens to dry up $11 billion of that figure this year. This past week's rain may help -- but it won't fix the problem.

But here's something that might fix the problemFaced with a Mother Nature increasingly stingy about parceling out rain, but sitting right next door to a huge bowl of water, a.k.a. the Pacific Ocean, many Californians wonder whether desalination is the answer to their problems.

Desalination is the process of taking ocean salt water and forcing it through a membrane to filter out salts through "reverse osmosis" -- thereby creating fresh water. It's hardly a new technology, yet only a handful of desalination plants operate in California today -- mostly for private use by industrial companies such as Pacific Gas & Electric.

15 new plants are at various stages of planning, though -- and therein lies the opportunity for investors.

We're from Israel, and we're here to helpOne desalination plant destined for public use is the $922 million, 50 million-gallon-per-day Carlsbad Desalination Project. Now under construction by privately held Poseidon Resources, in partnership with Israel Chemicals (NASDAQOTH: ISCHY) subsidiary IDE Technologies, Carlsbad aims to produce enough water to supply 7% of the city of San Diego's drinking water needs.

When completed in 2016, it will be the largest such plant in the Western Hemisphere. Should all 15 remaining desalination plants be built to similar scale, this would produce enough water to take a city the size of San Diego (population 1.34 million) out of the loop, releasing its water needs for use in irrigation. What's more, the cost of building 15 such plants wouldn't be very much more than the $11 billion in agricultural revenues that California stands to lose in a single year from the drought.

And from the Caribbean, tooA second company with the potential to slake California's thirst is publicly traded Consolidated Water (NASDAQ: CWCO) . Currently focused on the Caribbean, Consolidated Water not only builds but also operates multiple reverse osmosis desalination plants in the Bahamas, Belize, Bermuda, the British Virgin Islands and the Cayman Islands. While not currently operating in California, it clearly has the technical know-how, and is a logical choice for investment should California move ahead with plans to build more desalination plants.

Bring in the big gunsTwo firms with even more financial heft could also come to California's aid -- France's Veolia Environnement (NASDAQOTH: VEOEY) and America's own General Electric Company (NYSE: GE) . Veolia boasts of having "more than 100 years of experience ... in desalination" and of having built "more than 1,700 [reverse osmosis] desalination plants and systems in 85 countries" -- including the huge desalination plant in Sydney, Australia, that is currently supplying 15% of that city's water.

GE is nearly as puissant. The world's second biggest equipment supplier in the field of water treatment, it GE helped set up Africa's largest desalination plant, in Algiers, Algeria, just back in 2008. It took GE only two years to get the plant built, up and running "on time and on budget," and is now supplying Algiers with 53 million gallons of drinking water per day.

Meanwhile, a third company -- defense industry giant Lockheed Martin (NYSE: LMT) -- says it has developed a new technology for desalination that's capable of filtering water "at a fraction of the cost of industry-standard reverse osmosis systems."

Which is the best investment? Everything depends on whether California decides to act to solve its drought problem, by leveraging its position by the Pacific into a source of clean water through desalination. For now, Israel Chemicalsis the only "clear" winner from this crisis, having a construction contract in hand and work under way.

Farther out, though, GE and Veolia could certainly play a role in building California's desalination infrastructure. The biggest winner of all would be if a smallish company like Consolidated Water decided to get in the game. At Carlsbad, project managers aim to produce about 50 million gallons of water a day -- which equates to 153 acre-feet of water for irrigation. With San Diego contracted to pay $2,000 per acre-foot for water from the Carlsbad plant, that should work out to about $307,000 per day in revenues for a Carlsbad-size facility -- or $112 million annually.

By way of comparison, all of the revenues Consolidated Water generated in 2013, from all of its Caribbean plants combined, was barely half that amount-- just $65.2 million. One single contract from California could triple the size of its business.

That is, it could, if California gets serious about fixing the problem. For now, that's the biggest "if" of all.

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This is what California looked like in the drought that hit five years ago. Absent a solution, it's only going to get worse. Photo: Wikimedia Commons.

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While I understand that this article is written for the public investor, there are other companies (not yet public) that can provide some much better alternatives than these traditional companies focusing on membrane technology. Inland water desalination (agricultural runoff, oil produced water treatment) can be best treated via economical thermal processes. Startup companies such as WaterFX (www.waterfx.co) employ both energy-saving technologies as well as renewable energy to provide the best solutions available for CA water crisis -- providing new water resources without brine discharge to the ocean.

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